Forex reserves dip 2-year low in India

India’s foreign exchange reserves have dropped to its lowest level in more than two years, marking the third consecutive week of decline.

The Reserve Bank of India intervened to prevent the rupee from falling past $80 during the week when the dollar surged to over two-decade highs.

The RBI’s weekly statistical data showed the country’s foreign exchange reserves fell by $6.687 billion to $564.053 billion on August 19, marking its lowest in over two years and the third week of decline in a row, NDTV reports.

In the week prior, during the week ending August 12, the country’s import cover had declined by $2.238 to $570.74 billion. Barring the increase in the last week of July, which seems like a statistical blip, India’s forex war chest has declined every single week since early July. 

The slump in forex reserves by a touch over $67 billion since the Ukraine crisis and nearly $80 billion from its all-time highs last year echoes the slide in the rupee from about 74 per dollar to near 80, a level which analysts say the RBI has defended ferociously.

The fate of the Indian rupee has been driven by the rampant dollar in international markets, driven by an exodus of capital into dollar-denominated assets and at the cost of almost every other major currency in the world.

While the rupee briefly hit its all-time weak level of 80 against the dollar, the RBI has helped keep the Indian currency below that level by selling dollars in the spot and futures markets.

As a result of the central bank’s action, the central bank has drawn down the country’s import cover, the report said.

Still, India’s forex reserves are the fourth largest globally, according to RBI governor Shaktikanta Das after the latest rate-setting meeting when the central bank hiked rates for the third consecutive time.

On an absolute basis, the 2008-09 global financial crisis led to a drawdown of $70 billion in the reserves, which came down to $17 billion during the Covid-19 period and stood at $56 billion as of July 29 this year due to the Ukraine invasion-related impact.

But for now, the current crisis is far from over and may mean a further erosion in the country’s forex war chest.